China, Japan, Taiwan and US: Four to Party in Diaoyutai

EconMatters

Oct. 12, 2012, 11:33 AM

By EconMatters With Bin Laden and Gaddafi out of the picture, the geopolitical headline is now shifting to Asia/China. The most recent excitement came from a 3-way bitter territorial feud over eight small and uninhabited islands in the East China Sea. Historically, these uninhabited islands are rich fishing grounds with military strategic importance. It was also discovered in 1968 that there could be oil and gas reserves under the sea near the islands. It is estimated that the East China Sea region may hold as much as 160 billion barrels of oil. Today, these islands have different names depending on whom you talk to - Diaoyu in China, Diaoyutai in Taiwan, and Senkaku in Japan.

Duel in the East China SeaPhysically, Taiwan is the closest to Diaoyutai among the three; however, China and Japan have been portrayed as seemingly the only two players by the western media in this island row. Taiwan has always maintained a low profile in most international or diplomatic matters. But that changed about two weeks ago when Taiwan officially asserted its claim on Diaoyutai by dispatching 12 coast guard vessels along with some 50 civilian fishing boats to the islands. The resulted water cannon duel between the vessels of Taiwan and Japan has officially landed Taiwan squarely on the map of Diaoyutai, so to speak, before the eyes of world media. Japan Purchase Angers Chinese The history of this dispute has been a regional "undercurrent" that could be traced all the way back to Qing Dynasty. But tension erupted high above surface after Japan's attempt to "nationalize" these islands by purchasing them from a private owner for 2.05 billion yen ($26.18 million). This tactic, not that much different from the provocation by Japan to start the previous two Sino-Japanese Wars, has brought up lots of bad memories. Needless to say, Chinese (from both sides of the Strait) are livid and large scale anti-Japan protests have broken out in a dozen of cities in Mainland and Taiwan. Japan Sales Crash China was Japan's largest trading partner last year, and Japan is China's second-biggest trading partner after the United States with two-way trade totaling $342.9bn. China is also the largest auto market in the world and represents one significant "life line" for Japanese automakers. The renewed anti-Japanese backlash in China has already caused the "disastrous" decline of Japanese auto sales of up to 50% YoY in China last month.

Chart Source: China Daily, Oct. 10, 2012

Japan's loss is another rival's gain as BMW, GM and Korea's Hyundai are reporting surging YoY sales in September. China Daily quoted IHS Automotive that output and sales for Japanese automakers in China is estimated to be cut by 200,000 units this year, or 20% of sales. China communist party also threatened that Japan's economy could suffer for up to 20 years if China chose to impose sanctions over the escalating territorial row.The Role of U.S. in Diaoyutai Based on historical documents, Diaoyutai Islands were formally part of China, but Taiwan (along with the associated islands including Diaoyutai Islands) was ceded to Japan by the Qing Dynasty in 1895 via Treaty of Shimonoseki(馬關條約) after losing the First Sino-Japanese War. Taiwan was returned to the Republic of China formed by the Nationalist Party (KMT) in 1945 after the end of WW II in accordance of Cairo Declaration, and Potsdam Proclamation.